<PAGE>
<PAGE>
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COHEN & STEERS REALTY SHARES, INC.
January 29, 1999
To Our Shareholders:
We are pleased to submit to you our report for the quarter and year ended
December 31, 1998. The net asset value per share on that date was $37.98. In
addition, a distribution of $1.87 per share (including a regular $0.47 per share
distribution plus a capital gains distribution of $1.40 per share) was declared
for shareholders of record on November 30, 1998 and paid on December 4, 1998.
1998 REVIEW
For the quarter, Cohen & Steers Realty Shares, Inc. total return was
- 0.9%, which compared to the NAREIT Equity REIT Index total return of - 2.9%.
For the twelve months, the Fund's total return was - 18.1% which compared to
NAREIT's - 17.5%.
Without a doubt, 1998 was the most challenging year ever for REIT
investors. The bear market that gripped the industry, in the face of seemingly
strong fundamentals, surprised most with the speed and severity of losses that
were sustained. In a year filled with ironies, the overall investment
environment in 1998 was nothing less than ideal: strong economic growth with low
inflation and declining interest rates precipitated a record-shattering
continuation of strong stock market performance. It was also a year in which
real estate fundamentals remained strong, and the public market discipline was
effective in reigning in any potential speculative excesses in the property
markets. We suspect that if one could have accurately predicted this set of
circumstances at the beginning of the year, one would have assumed that REITs
would produce outstanding investment returns. On the contrary, REITs recorded
their worst year of investment performance in over 20 years, with every property
sector showing a price decline.
At the company level, REIT financial performance in 1998 was exceptionally
good on both an absolute and relative basis. Earnings growth averaged 13%, more
than double the 5.2% rate of earnings growth of the S&P 500 Index, and
throughout the year most companies consistently reported better-than-expected
results. Further, we estimate that dividend growth in the REIT industry was a
healthy 8%, implying a decline in payout ratios, thereby ensuring the stability
and safety of those dividends. Ignoring these positive developments, investors
instead chose to focus on some actual and potentially negative real estate
industry trends. These included the state of equilibrium of most major property
markets, potential future slowing growth of REIT earnings, competition from
private real estate investors, and the increasing industry-wide use of leverage,
among others.
Perhaps most importantly, investors in 1998 became concerned about
persistent deflationary pressures and their long-term impact on rents and
property values. It is no coincidence, in our opinion, that in addition to
REITs, 1998's worst performing investments included other potential victims of
deflation such as most commodities, precious and non-precious metals, and just
about anything that is energy-related. In a low inflation (or deflationary) and
low interest rate environment, investors often pay the highest price for
longer-term investments, such as high grade long-term bonds or high growth
stocks; technology, communications or internet companies, for example. If
deflation is expected to persist for a long period, investors typically demand a
higher current return in order to offset the risk of a potential long-term
decline in asset values. The net result was that equity REIT dividend yields
rose from 5.5% at the beginning of the year to a 5-year high of 7.5% by year
end.
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1
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COHEN & STEERS REALTY SHARES, INC.
The downward spiral of REIT share prices further disadvantaged many
companies. Sentiment became so negative that for the first time in many years
REITs became unable to access the equity capital markets. In response, many
companies began to increase their use of debt financing or off-balance sheet
leverage through joint ventures. This too is a strategy whose success is
threatened by future deflation. By late summer, however, the collapse of the
commercial mortgage backed securities market put a major crimp in the flow of
debt financing. As capital raising ground to a halt, most companies scaled back
their acquisition programs, causing most analysts to reduce estimates of
earnings growth in 1999 and beyond. More importantly, the withdrawal of capital
from the real estate market began to exert extreme pressure on property values,
with many estimating approximately a 10-15% drop in prices from earlier peaks.
In some sectors, such as hotels, the price decline was far worse. Once again,
the public market's influence dominated the functioning of real estate markets.
The reduction in interest rates by the Federal Reserve in the fall
cushioned the decline of REIT share prices, but had a much more beneficial
effect on the broader financial markets. The fourth quarter decline in REIT
share prices compared to a 21.3% total return of the S&P 500 Index. Nonetheless,
as liquidity returned to real estate markets and fears of a global economic
slowdown abated, property values began to stabilize as did REIT share prices,
albeit at depressed levels.
INVESTMENT OUTLOOK
We begin the New Year in an investment environment that is almost identical
to that which prevailed through most of last year; continued strong economic
growth, low inflation and interest rates and a strong stock market. If the
environment is no different from 1998, one must question what will alter the
outlook for REIT investing in 1999.
What is different for REITs is that their prices are 22% lower and their
earnings are 13% higher than a year ago. This compares to the S&P 500 Index
whose price is 27% higher and whose earnings are up only 5%. Further, whereas
one year ago REITs, on average, were trading at more than a 20% premium to their
net asset values (NAVs) they are now trading below their NAVs. As a result, on
both a relative and absolute basis, REITs are just about as cheap as they have
ever been. It therefore appears to us that the concerns that weighed on
investors through most of 1998 should be adequately factored in REIT share
prices.
We do not believe, however, that a new bull market in REIT shares is about
to begin. Rather, we expect most real estate markets to remain in equilibrium,
whereby the supply and demand for space is about equal. Based upon the
experience of last year, the near instantaneous reaction of the financial
markets to any actual or perceived imbalances will likely serve to maintain this
equilibrium condition. The swiftness with which the real estate markets have
moved is primarily the result of the domination of public securities markets for
debt and equity financing of real estate. This is enhanced by the rapid flow of
property-level and regional market information. These are perhaps the most
important by-products of securitization.
While a persistent equilibrium condition is a consequence of public market
discipline and is generally very positive for the industry, it does pose a
number of challenges. It represents a vast increase in the efficiency of the
market and thereby a narrowing and reduction of profit opportunities, both in
the direct property markets as well as in REIT investing. Thus it is our belief
that future returns from REITs will be consistent with this less cyclical,
steady fundamental environment. A reversion to a low to mid teens type of
return, on average, should result from the current 7.5% dividend yield and a
single digit long-term growth rate. This environment should foster the
- --------------------------------------------------------------------------------
2
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COHEN & STEERS REALTY SHARES, INC.
continued consolidation of the real estate industry, resulting in the creation
of ever-larger companies. These companies too may begin to produce 'index-like'
returns due to the increasing size and scope of their property holdings. Some
have suggested that the real estate industry is quickly taking on many of the
characteristics of the utility industry, both from an operational and investment
return standpoint.
Just as 1998 was a challenging year for investors, 1999 will be an even
more challenging year for REIT managements. Their biggest challenge will be to
make the transition to both an opportunity and a capital constrained
environment. In essence, the stock market has already anticipated this by virtue
of the severe industry-wide contraction in P/E multiples. Not all companies will
make this transition successfully, and for those that cannot adopt strategies
that promote long-term earnings growth and value creation, further multiple
erosion is possible and NAV per share (or some discount from it) will become an
effective ceiling on their stock prices. For those that do succeed, a
restoration of prior stock market valuations may result.
Another major challenge relates to management compensation in an
equilibrium environment. Over the past two years, there has been an escalation
in compensation programs that are heavily oriented to share price performance,
and for many companies the number of options granted was the maximum authorized
by shareholders. As a result of the bear market, these options have little or no
near-term value, and the company may have no additional options to grant. The
longer-term issue that affects nearly all companies relates to these incentive
compensation plans in an industry which now enjoys slow growth and therefore
lower potential stock price appreciation. The requirement that REITs pay out
their income as dividends, of course, further lessens the long-term appreciation
potential of REIT shares. This will require REITs to be more judicious in
rewarding future stock options and to adopt compensation plans that reward
management primarily on per-share profit performance.
Perhaps the biggest challenge facing the REIT industry as a whole is to
restore the confidence of investors. REIT shareholders had become accustomed to
a nearly ideal investment climate after seven consecutive years of excellent
profit growth and stock market returns, irrespective of financial market or
economic conditions. This was clearly a reflection of the long recovery that had
been underway in the real estate market, until early 1998. Nevertheless, the
price decline of REITs during periods of both stock market strength and weakness
during the year has shaken the confidence of REIT investors. Many had expected
low volatility in addition to defensive investment characteristics during any
market downturn. The fact that neither of these was evident in 1998 has confused
many investors with respect to the true investment characteristics of REITs.
Our belief is that the behavior of REITs is best explained by the real
estate cycle, which often does not correlate well to either the stock market or
the economy. This was clearly the case in 1998 as the REIT market adjusted to
the transition from the growth to the equilibrium phase of the real estate
cycle. With the real estate industry now stabilized and as continued growth in
earnings and dividends are demonstrated by REITs, investors seeking
diversification should return to the group, especially if, as is likely, this
growth is superior to that of companies in most other sectors of the economy.
Because of the continued growth of the economy and the health of most property
markets, we concur with Wall Street estimates of earnings growth for the
industry in the 9% range for 1999, with similar results preliminarily estimated
for 2000.
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3
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COHEN & STEERS REALTY SHARES, INC.
Our task as your portfolio manager is to identify those companies that can
effectively meet the challenges we have outlined. We believe that we have
accomplished this in 1998, as evidenced by our strong relative returns in the
fourth quarter and since the Fund's inception. Looking forward we believe that
from the current valuation level, REITs, on average, do not have a great deal of
risk. Further, if we are correct in our assessment of the managements of the
companies we hold, our portfolio should enjoy excellent investment returns.
Sincerely,
<TABLE>
<S> <C>
MARTIN COHEN ROBERT H. STEERS
President Chairman
</TABLE>
Cohen & Steers is now online at www.cohenandsteers.com. Visit our website for
daily NAVs, portfolio information, performance information, recent news
articles, literature and insights on the REIT market.
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4
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COHEN & STEERS REALTY SHARES, INC.
PERFORMANCE REVIEW
The investment objective of Cohen & Steers Realty Shares, Inc. is total
return through investment in real estate securities. The Fund pursues its
investment objective by seeking both current income and capital appreciation.
Securities in the portfolio are selected by the adviser based on the outlook for
various property types and regions of the country, and fundamental research on
the individual companies. Among the investment criteria applied to individual
companies are organizational structure, management depth, track record of
profitability, balance sheet strength and growth potential.
The Fund's investment performance in 1998 was approximately in line with
its benchmark. Real estate securities (and the Fund) performed poorly in general
in 1998, in the Adviser's view, due to concerns about the maturity of the real
estate cycle and the uncertain outlook for the economy. In light of the decline
in share prices in 1998, we believe these issues and concerns are now more than
adequately reflected in the valuations of real estate securities.
The performance of the Fund's cumulative return since its inception in 1991
has comfortably exceeded that of its benchmarks.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
FOR PERIODS ENDED DEC. 31, 1998
- ------------------------------------------------------------------------
1 YEAR SINCE INCEPTION (7/2/91)
- ------------------------------------------------------------------------
<S> <C> <C>
FUND -18.07% 13.27%
- ------------------------------------------------------------------------
NAREIT All -18.82% 11.41%
- ------------------------------------------------------------------------
Wilshire -17.43% 9.07%
- ------------------------------------------------------------------------
S&P 500 28.58% 20.20%
- ------------------------------------------------------------------------
</TABLE>
[GRAPH]
Growth of a $10,000
Investment Since Inception
<TABLE>
<CAPTION>
DATE REALTY SHARES NAREIT WILSHIRE S&P 500
---- ------------- ------ -------- -------
<S> <C> <C> <C> <C>
7/2/91 10,000 10,000 10,000 10,000
12/31/91 10,792 10,823 9,906 11,418
12/31/92 12,959 12,142 10,680 12,287
12/31/93 15,389 14,394 12,308 13,526
12/31/94 16,669 14,515 12,511 13,704
12/31/95 18,523 17,173 14,219 18,854
12/31/96 25,651 23,314 19,462 23,185
12/31/97 31,077 28,793 23,315 30,920
12/31/98 25,462 23,373 19,253 39,757
</TABLE>
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate. When shares are redeemed, they may be worth
more or less than the original cost.
* Commencement of operations.
'D' The comparative indices are not adjusted to reflect expenses or other fees
that the SEC requires to be reflected in the Fund's performance. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
NAREIT Index of All REITs is comprised of 210 real estate investment trusts.
The Wilshire Real Estate Securities Index is comprised of 119 companies
operating in the real estate industry and includes REITs. This Index does
not include REITs with investments in health care facilities. The Fund
invests in REITs with investments in health care facilities. The S&P 500
Index is an unmanaged list of common stocks that is frequently used as a
general measure of stock market performance. For more information, including
charges and expenses, please read the prospectus carefully before you
invest.
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5
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COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
---------- --------------
<S> <C> <C>
EQUITIES 100.16%
APARTMENT/RESIDENTIAL 14.93%
'D'Apartment Investment & Management Co. -- Class A....... 2,882,500 $ 107,192,969
Archstone Communities Trust............................ 2,168,600 43,914,150
AvalonBay Communities.................................. 2,455,097 84,087,072
Charles E. Smith Residential Realty.................... 509,000 16,351,625
'D'Essex Property Trust................................... 1,244,200 37,014,950
--------------
288,560,766
--------------
DIVERSIFIED 12.79%
*Crescent Operating..................................... 301,200 1,430,700
'D'LNR Property Corp...................................... 2,499,600 49,835,775
Newhall Land & Farming Company......................... 648,700 16,866,200
*'D'Reckson Services Industries............................ 1,612,608 6,652,008
*'D'Vornado Operating Co................................... 251,890 2,030,863
'D'Vornado Realty Trust................................... 5,050,800 170,464,500
--------------
247,280,046
--------------
HEALTH CARE 2.27%
Crestline Capital Corp................................. 103,450 1,512,956
Healthcare Realty Trust................................ 921,400 20,558,737
Nationwide Health Properties........................... 1,011,400 21,808,313
--------------
43,880,006
--------------
HOTEL 6.38%
FelCor Lodging Trust................................... 688,200 15,871,612
Host Marriott Corp..................................... 1,034,500 14,289,031
Marriott International................................. 578,600 16,779,400
Starwood Hotels & Resorts Worldwide.................... 3,370,300 76,463,681
--------------
123,403,724
--------------
</TABLE>
See accompanying notes to financial statements.
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6
<PAGE>
<PAGE>
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COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
---------- --------------
INDUSTRIAL 5.49%
<S> <C> <C>
#AMB Property Corp. 144A................................ 17,825 $ --
CenterPoint Properties Corp............................ 50,200 1,697,387
First Industrial Realty Trust.......................... 1,745,900 46,811,944
ProLogis Trust......................................... 2,781,900 57,724,425
--------------
106,233,756
--------------
OFFICE 24.34%
'D'Arden Realty Group..................................... 3,680,900 85,350,869
Cousins Properties..................................... 1,165,100 37,574,475
Crescent Real Estate Equities Co. ..................... 3,086,700 70,994,100
Equity Office Properties Trust Co. .................... 851,400 20,433,600
'D'Highwoods Properties................................... 3,561,000 91,695,750
'D'Mack-Cali Realty Corp.................................. 4,319,100 133,352,213
'D'SL Green Realty Corp................................... 1,439,100 31,120,538
--------------
470,521,545
--------------
OFFICE/INDUSTRIAL 11.03%
'D'Prime Group Realty Trust............................... 1,649,300 24,945,663
PS Business Parks...................................... 1,034,300 24,693,913
'D'Reckson Associates Realty Corp......................... 3,359,600 74,541,125
Spieker Properties..................................... 2,253,700 78,034,363
TriNet Corporate Realty Trust.......................... 412,100 11,023,675
--------------
213,238,739
--------------
SELF STORAGE 2.05%
Public Storage......................................... 1,463,700 39,611,381
--------------
SHOPPING CENTER 20.88%
COMMUNITY CENTER 8.16%
'D'Developers Diversified Realty Corp..................... 3,579,100 63,529,025
Kimco Realty Corp...................................... 2,375,000 94,257,812
--------------
157,786,837
--------------
</TABLE>
See accompanying notes to financial statements.
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7
<PAGE>
<PAGE>
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COHEN & STEERS REALTY SHARES, INC.
SCHEDULE OF INVESTMENTS -- (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER VALUE
OF SHARES (NOTE 1)
---------- --------------
REGIONAL MALL 12.72%
<S> <C> <C>
'D'General Growth Properties.............................. 2,107,600 $ 79,825,350
JP Realty.............................................. 625,200 12,269,550
'D'Macerich Co............................................ 2,036,200 52,177,625
Rouse Co............................................... 1,855,800 51,034,500
Simon Property Group................................... 1,777,100 50,647,350
--------------
245,954,375
--------------
TOTAL SHOPPING CENTER.................................. 403,741,212
--------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
TOTAL INVESTMENTS (Identified cost -- $1,946,155,022)..... 100.16 % 1,936,471,175
LIABILITIES IN EXCESS OF OTHER ASSETS..................... (0.16)% (3,130,996)
------ --------------
NET ASSETS (Equivalent to $37.98 per share based on
50,910,426 shares of capital stock outstanding)........ 100.00 % $1,933,340,179
------ --------------
------ --------------
</TABLE>
- ------------
* Non-income producing security.
'D' The Fund owns 5% or more of this company's outstanding voting securities
(Note 5).
# As of December 31, 1998, security is restricted and is subject to registration
with the Securities and Exchange Commission. Escrow shares held by the
company's transfer agent. These shares have been valued at $0 market value due
to the uncertainty of the Fund receiving them.
See accompanying notes to financial statements.
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8
<PAGE>
<PAGE>
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COHEN & STEERS REALTY SHARES, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value (Identified cost -- $1,946,155,022) (Notes 1 and 5)..... $1,936,471,175
Cash........................................................................................ 9,926
Dividends receivable........................................................................ 13,084,556
Receivable for investment securities sold................................................... 7,264,454
Receivable for fund shares sold............................................................. 2,995,884
Other assets................................................................................ 113,730
--------------
Total Assets.......................................................................... 1,959,939,725
--------------
LIABILITIES:
Payable for outstanding borrowings (Note 7)................................................. 16,105,016
Payable for fund shares redeemed............................................................ 8,296,441
Payable to investment adviser............................................................... 1,454,907
Payable to administrator.................................................................... 391,981
Payable to directors........................................................................ 819
Other liabilities........................................................................... 350,382
--------------
Total Liabilities..................................................................... 26,599,546
--------------
NET ASSETS applicable to 50,910,426 shares of $0.001 par value common stock
outstanding (Note 4)........................................................................ $1,933,340,179
--------------
--------------
NET ASSET VALUE PER SHARE:
($1,933,340,179[div]50,910,426 shares outstanding).......................................... $ 37.98
--------------
--------------
NET ASSETS consist of:
Paid-in capital (Notes 1 and 4)............................................................. $1,917,688,370
Accumulated net realized gain on investments sold........................................... 25,335,656
Net unrealized depreciation on investments.................................................. (9,683,847)
--------------
$1,933,340,179
--------------
--------------
</TABLE>
See accompanying notes to financial statements.
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9
<PAGE>
<PAGE>
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COHEN & STEERS REALTY SHARES, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Investment Income (Note 1):
Dividend income (includes $56,294,160 received from affiliated issuers) (Note 5)............ $ 137,607,485
Interest income............................................................................. 4,559,914
-------------
Total Income.......................................................................... 142,167,399
-------------
Expenses:
Investment advisory fees (Note 2)........................................................... 22,579,469
Administration and transfer agent fees (Note 2)............................................. 3,875,340
Reports to shareholders..................................................................... 454,933
Custodian fees and expenses................................................................. 395,300
Professional fees........................................................................... 212,823
Registration and filing fees................................................................ 102,916
Interest expense (Note 7) .................................................................. 31,868
Directors' fees and expenses (Note 2) ...................................................... 31,786
Miscellaneous............................................................................... 436,545
-------------
Total Expenses........................................................................ 28,120,980
Reduction of expenses (Note 6).............................................................. (342,466)
-------------
Net Expenses.......................................................................... 27,778,514
-------------
Net Investment Income............................................................................. 114,388,885
-------------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain on investments (includes realized gains of $5,244,050 on
sales of investments in affiliated issuers) (Note 5)..................................... 49,313,119
Net change in unrealized appreciation/(depreciation) on investments......................... (720,604,899)
-------------
Net realized and unrealized gain/(loss) on investments................................ (671,291,780)
-------------
Net Decrease in Net Assets Resulting from Operations.............................................. $(556,902,895)
-------------
-------------
</TABLE>
See accompanying notes to financial statements.
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10
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COHEN & STEERS REALTY SHARES, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Change in Net Assets:
From Operations:
Net investment income.................................. $ 114,388,885 $ 115,637,815
Net realized gain on investments....................... 49,313,119 163,378,333
Net change in unrealized appreciation/(depreciation) on
investments......................................... (720,604,899) 291,842,960
----------------- -----------------
Net increase/(decrease) in net assets resulting
from operations............................... (556,902,895) 570,859,108
----------------- -----------------
Dividends and Distributions to Shareholders from (Note 1):
Net investment income.................................. (92,852,026) (116,292,923)
Net realized gain on investments....................... (82,995,761) (149,113,688)
Tax return of capital.................................. (7,514,066) --
----------------- -----------------
Total dividends and distributions to
shareholders.................................. (183,361,853) (265,406,611)
----------------- -----------------
Capital Stock Transactions (Note 4):
Increase/(decrease) in net assets from Fund share
transactions........................................ (759,389,895) 1,091,163,740
----------------- -----------------
Total increase/(decrease) in net assets.......... (1,499,654,643) 1,396,616,237
Net Assets:
Beginning of year...................................... 3,432,994,822 2,036,378,585
----------------- -----------------
End of year............................................ $ 1,933,340,179 $ 3,432,994,822
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to financial statements.
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11
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<PAGE>
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COHEN & STEERS REALTY SHARES, INC.
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each period and other performance information derived from the
Financial Statements. It should be read in conjunction with the Financial
Statements and notes thereto.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1998 1997 1996 1995 1994
- ----------------------------------------------------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year................... $ 50.18 $ 45.09 $ 34.62 $ 32.90 $ 31.92
---------- ---------- ---------- -------- --------
Income from investment operations
Net investment income........................... 1.97 1.87 1.86 1.86 1.66
Net realized and unrealized gain/(loss) on
investments.................................. (10.89) 7.40 11.04 1.69 0.98
---------- ---------- ---------- -------- --------
Total from investment operations.......... (8.92) 9.27 12.90 3.55 2.64
---------- ---------- ---------- -------- --------
Less dividends and distributions to shareholders
from:
Net investment income........................... (1.59) (1.88) (1.76) (1.33) (1.09)
Net realized gain on investments................ (1.56) (2.30) (0.55) -- --
Tax return of capital........................... (0.13) -- (0.12) (0.50) (0.57)
---------- ---------- ---------- -------- --------
Total dividends and distributions to
shareholders........................... (3.28) (4.18) (2.43) (1.83) (1.66)
---------- ---------- ---------- -------- --------
Net asset value, end of year......................... $ 37.98 $ 50.18 $ 45.09 $ 34.62 $ 32.90
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
----------------------------------------------------------------------------------------------------------------
Total investment return.............................. - 18.07% 21.16% 38.48% 11.13% 8.31%
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in millions)........... $1,933.340 $3,432.995 $2,036.379 $793.084 $458.098
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
Ratios of expenses to average daily net assets
(before expense reduction)................... 1.04% 1.06% 1.10% 1.16% 1.26%
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
Ratios of expenses to average daily net assets
(net of expense reduction)................... 1.03% 1.05% 1.08% 1.12% 1.14%
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
Ratio of net investment income to average daily
net assets (before expense reduction)........ 4.23% 4.02% 5.27% 6.01% 5.59%
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
Ratio of net investment income to average daily
net assets (net of expense reduction)........ 4.24% 4.04% 5.28% 6.05% 5.71%
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
Portfolio turnover rate......................... 30.18% 40.44% 33.23% 22.68% 39.00%
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
12
<PAGE>
<PAGE>
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COHEN & STEERS REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Cohen & Steers Realty Shares, Inc. (the 'Fund') was incorporated under the
laws of the State of Maryland on April 26, 1991 and is registered under the
Investment Company Act of 1940, as amended, as an open-end, non-diversified
management investment company. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally accepted
accounting principles. The preparation of the financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
Portfolio Valuation: Investments in securities that are listed on the New
York Stock Exchange are valued, except as indicated below, at the last sale
price reflected at the close of the New York Stock Exchange on the business day
as of which such value is being determined. If there has been no sale on such
day, the securities are valued at the mean of the closing bid and asked prices
for the day.
Securities not listed on the New York Stock Exchange but listed on other
domestic or foreign securities exchanges or admitted to trading on the National
Association of Securities Dealers Automated Quotations, Inc. ('NASDAQ') National
Market System are valued in a similar manner. Securities traded on more than one
securities exchange are valued at the last sale price on the business day as of
which such value is being determined as reflected on the tape at the close of
the exchange representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market,
including listed securities whose primary market is believed by the Adviser to
be over-the-counter, but excluding securities admitted to trading on the NASDAQ
National List, are valued at the mean of the current bid and asked prices as
reported by NASDAQ, the National Quotation Bureau or such other comparable
sources as the Board of Directors deems appropriate to reflect their fair market
value. Where securities are traded on more than one exchange and also
over-the-counter, the securities will generally be valued using the quotations
the Board of Directors believes reflect most closely the value of such
securities.
Short-term debt securities, which have a maturity value of 60 days or less,
are valued at amortized cost which approximates value.
Security Transactions and Investment Income: Security transactions are
recorded on trade date. Realized gains and losses on investments sold are
recorded on the basis of identified cost for accounting and tax purposes.
Interest income is recorded on the accrual basis. Dividend income is recorded on
the ex-dividend date.
Dividends and Distributions to Shareholders: Dividends from net investment
income are declared and paid quarterly. A portion of the Fund's dividend may
consist of amounts in excess of net investment income derived
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COHEN & STEERS REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
from non-taxable components of the dividends from the Fund's portfolio
investments. As a result, the Fund had a return of capital of $7,514,066 ($0.13
per share) for the year ended December 31, 1998, which has been charged from
paid-in capital. Net realized capital gains, unless offset by any available
capital loss carryforward, are distributed to shareholders annually.
Distributions to shareholders are recorded on the ex-dividend date.
Dividends will automatically be reinvested in full and fractional shares of
the Fund based on the net asset value per share at the close of business on the
ex-dividend date unless the shareholder has elected to have them paid in cash.
Dividends from net income and capital gain distributions are determined in
accordance with U.S. Federal Income Tax regulations which may differ from
generally accepted accounting principles. During the year ended December 31,
1998, the Fund decreased undistributed net investment income and increased
accumulated net realized gain on investment sold by $21,536,859. These
differences are primarily due to return of capital and capital gain
distributions received by the Fund on portfolio securities.
Federal Income Taxes: It is the policy of the Fund to qualify as a
regulated investment company, if such qualification is in the best interest of
the shareholders, by complying with the requirements of Subchapter M of the
Internal Revenue Code applicable to regulated investment companies, and by
distributing substantially all of its taxable earnings to its shareholders.
Accordingly, no provision for federal income or excise tax is necessary.
NOTE 2. INVESTMENT ADVISORY AND ADMINISTRATION FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
Investment Advisory Fees: Cohen & Steers Capital Management, Inc. (the
'Adviser') serves as the Fund's investment adviser pursuant to an investment
advisory agreement (the 'Advisory Agreement'). Under the terms of the Advisory
Agreement, the Adviser provides the Fund with the day-to-day investment
decisions and generally manages the Fund's investments in accordance with the
stated policies of the Fund, subject to the supervision of the Fund's Board of
Directors. For the services provided to the Fund, the Adviser receives a monthly
fee in an amount equal to 1/12th of 0.85% for the first $2.5 billion and 1/12th
of 0.75% thereafter of the average daily net assets of the Fund. For the year
ended December 31, 1998, the Fund incurred $22,579,469 in advisory fees.
Administration Fees: The Fund has entered into an administration agreement
with the Adviser under which the Adviser performs certain administrative
functions for the Fund and receives a fee of 0.02% of the Fund's average daily
net assets. For the year ended December 31, 1998, the Fund paid the Adviser
$539,651 in fees under this administration agreement.
In addition, the Fund has entered into a fund accounting and
sub-administration agreement with The Chase Manhattan Bank ('Chase') for
performing administration functions for the Fund. Chase receives a monthly sub-
administration fee at the annual rate of 0.08% on the first $500 million of the
Fund's average daily net assets and at lower rates on the Fund's average daily
net assets in excess of that amount.
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COHEN & STEERS REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Directors' Fees: Certain directors and officers of the Fund are also
directors, officers and/or employees of the Adviser. None of the directors and
officers so affiliated received compensation for their services as directors of
the Fund. Fees and related expenses accrued for non-affiliated directors totaled
$31,786 for the year ended December 31, 1998.
NOTE 3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, for
the year ended December 31, 1998 totaled $792,202,747 and $1,534,253,854,
respectively.
At December 31, 1998, the cost and unrealized appreciation or depreciation
in value of the investments owned by the Fund, as computed on a federal income
tax basis, are as follows:
<TABLE>
<S> <C>
Aggregate cost....................................................................... $1,920,819,367
--------------
Gross unrealized appreciation........................................................ $ 150,124,670
Gross unrealized depreciation........................................................ $ (165,776,478)
--------------
Net unrealized depreciation.......................................................... $ (15,651,808)
--------------
--------------
</TABLE>
NOTE 4. CAPITAL STOCK
The Fund is authorized to issue 200 million shares of capital stock at a
par value of $0.001 per share. The Board of Directors of the Fund may increase
or decrease the aggregate number of shares of common stock that the Fund has
authority to issue. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Sold..................................... 19,345,027 $ 869,232,043 42,163,082 $1,966,764,076
Issued as reinvestment of dividends...... 3,881,513 158,738,009 4,893,086 236,192,855
Redeemed................................. (40,731,134) (1,787,359,947) (23,803,456) (1,111,793,191)
----------- -------------- ----------- --------------
Net increase/(decrease).................. (17,504,594) $ (759,389,895) 23,252,712 $1,091,163,740
----------- -------------- ----------- --------------
----------- -------------- ----------- --------------
</TABLE>
NOTE 5. INVESTMENTS IN AFFILIATES
The market value of investments in affiliates (as defined in the Investment
Company Act of 1940, 'Affiliated Companies' are those in which the Fund holds 5%
or more of the outstanding voting securities) at December 31, 1998 totaled
$1,009,729,223.
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COHEN & STEERS REALTY SHARES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Affiliates, their investment income, and gain/(loss) from sales of
affiliates are as follows (in thousands):
<TABLE>
<CAPTION>
BEGINNING PURCHASE SALE ENDING PURCHASE SALES GAIN/(LOSS)
EQUITIES SHARES SHARES SHARES SHARES COST COST ON SALES
- ------------------------------------------- --------- -------- ------ ------ -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Apartment Investment & Management Co. ..... 2,218 820 155 2,883 $ 30,722 $ 4,892 $ 823
Arden Realty Group ........................ 3,126 1,184 629 3,681 32,511 18,028 (3,895)
Developers Diversified Realty Corp. ....... 2,150 2,500 1,071 3,579 6,698 17,756 1,515
Essex Property Trust ...................... 1,336 -- 92 1,244 -- 2,676 231
General Growth Properties ................. 2,954 -- 846 2,108 -- 23,636 5,672
Highwoods Properties ...................... 2,483 1,078 -- 3,561 31,048 -- --
LNR Property Corp. ........................ 1,472 1,143 115 2,500 25,443 2,934 (755)
Macerich Co. .............................. 1,879 373 216 2,036 10,532 5,574 6
Mack-Cali Realty Corp. .................... 3,540 779 -- 4,319 26,464 -- --
Prime Group Realty Trust .................. 962 1,158 471 1,649 22,432 9,453 (1,682)
Reckson Associates Realty Corp. ........... 3,485 -- 126 3,359 -- 1,676 1,458
Reckson Services Industries ............... -- 1,613 -- 1,613 1,661 -- --
SL Green Realty Corp. ..................... 882 582 25 1,439 13,067 525 142
Vornado Operating Co. ..................... -- 252 -- 252 1,712 -- --
Vornado Realty Trust ...................... 4,273 843 65 5,051 33,979 1,168 1,729
-------- ------- -----------
$236,269 $88,318 $ 5,244
-------- ------- -----------
-------- ------- -----------
<CAPTION>
DIVIDEND
EQUITIES INCOME
- ------------------------------------------- --------
<S> <C>
Apartment Investment & Management Co. ..... $ 5,800
Arden Realty Group ........................ 6,638
Developers Diversified Realty Corp. ....... 5,720
Essex Property Trust ...................... 2,455
General Growth Properties ................. 3,779
Highwoods Properties ...................... 5,843
LNR Property Corp. ........................ 117
Macerich Co. .............................. 3,802
Mack-Cali Realty Corp. .................... 6,223
Prime Group Realty Trust .................. 1,836
Reckson Associates Realty Corp. ........... 4,451
Reckson Services Industries ............... --
SL Green Realty Corp. ..................... 1,787
Vornado Operating Co. ..................... --
Vornado Realty Trust ...................... 7,843
--------
$ 56,294
--------
--------
</TABLE>
NOTE 6. DIRECTED BROKERAGE ARRANGEMENTS
The Adviser has directed certain portfolio trades to brokers who paid a
portion of the Fund's expenses. For the year ended December 31, 1998, the Fund's
expenses were reduced by $342,466 under this arrangement.
NOTE 7. BORROWINGS
The Fund, in conjunction with Cohen & Steers Special Equity Fund, Inc. and
Cohen & Steers Equity Income Fund, Inc., has entered into a Line of Credit
Agreement with Chase Manhattan Bank for $250,000,000. At December 31, 1998, the
Fund had loans outstanding totaling $16,105,016. During the periods December 17,
1998 and December 23, 1998 through December 31, 1998, the average daily balance
of loans outstanding was $21,010,000 at a weighed average interest rate of
5.46%. The maximum amount of loans outstanding at any time during the year ended
was $25,000,000 on December 23, 1998, which was 1.28% of total assets. The loan
is collateralized by the Fund's portfolio to the extent of the loan outstanding.
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COHEN & STEERS REALTY SHARES, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Cohen & Steers Realty Shares, Inc.:
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statement of operations,
statements of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Cohen & Steers Realty
Shares, Inc. (the 'Fund') at December 31, 1998, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as 'financial statements') are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
January 29, 1999
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COHEN & STEERS REALTY SHARES, INC.
<TABLE>
<S> <C>
OFFICERS AND DIRECTORS KEY INFORMATION
Robert H. Steers INVESTMENT ADVISER
Director and Chairman Cohen & Steers Capital Management, Inc.
757 Third Avenue
Martin Cohen New York, NY 10017
Director and President (212) 832-3232
Gregory C. Clark FUND SUB-ADMINISTRATOR AND TRANSFER AGENT
Director Chase Global Funds Services Co.
73 Tremont Street
George Grossman Boston, MA 02108
Director (800) 437-9912
Jeffrey H. Lynford CUSTODIAN
Director The Chase Manhattan Bank
One Chase Manhattan Plaza
Willard H. Smith, Jr. New York, NY 10081
Director
LEGAL COUNSEL
Elizabeth O. Reagan Dechert Price & Rhoads
Vice President 1775 Eye Street, NW
Washington, DC 20006
Adam Derechin
Vice President and NASDAQ Symbol: CSRSX
Assistant Treasurer
Website: www.cohenandsteers.com
Net asset value (NAV) can be found in the daily mutual
fund listings in the financial section of most major
newspapers under Cohen & Steers.
This report is authorized for delivery only to
shareholders of Cohen & Steers Realty Shares, Inc. unless
accompanied or preceded by the delivery of a currently
effective prospectus setting forth details of the Fund.
</TABLE>
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COHEN & STEERS
REALTY SHARES
----------------
ANNUAL REPORT
DECEMBER 31, 1998
COHEN & STEERS
REALTY SHARES
757 THIRD AVENUE
NEW YORK, NY 10017
STATEMENT OF DIFFERENCES
The dagger symbol shall be expressed as......................................'D'
The division sign shall be expressed as....................................[div]
